Elgin Groseclose - Americas Money Machine: The Story of the Federal Reserve

AMERICAS

MONEY

MACHINE

BOOKS BY ELGIN GROSECLOSE

Money: The Human Conflict (1934)

The Persian Journey of the Reverend Ashley Wishard and His Servant Fathi (1937)

Ararat (1939, 1974, 1977)

The Firedrake (1942)

Introduction to Iran (1947)

The Carmelite (1955)

The Scimitar of Saladin (1956)

Money and Man (1961, 1967, 1976)

Fifty Years of Managed Money (1966)

Post-War Near Eastern Monetary Standards (monograph, 1944)

The Decay of Money (monograph, 1962)

Money, Man and Morals (monograph, 1963)

Silver as Money (monograph, 1965)

The Silken Metal-Silver (monograph, 1975)

The Kiowa (1978)

Olympia (1980)

AMERICAS

MONEY

MACHINE

The Story of the Federal Reserve

Elgin Groseclose, Ph.D.

Prepared under the sponsorship of the Institute for Monetary Research, Inc., Washington, D. C. Ellice McDonald, Jr., Chairman

Arlington House Publishers
Westport, Connecticut

An earlier version of this book was published in 1966 by Books, Inc., under the title Fifty Years of Managed Money

Copyright 1966 and 1980 by Elgin Groseclose

All rights reserved. No portion of this book may be reproduced without written permission from the publisher except by a reviewer who may quote brief passages in connection with a review.

Library of Congress Cataloging in Publication Data

Groseclose, Elgin Earl, 1899
Americas money machine.

Published in 1966 under title: Fifty years of managed money, by Books, inc.

Bibliography: P.

Includes index.

1. United States. Board of Governors of the Federal Reserve SystemHistory. I. Title. HG2563.G73 1980 332.1'1'0973 80-17482 ISBN 0-87000-487-5

Manufactured in the United States of America

P 10987654321

For

My Beloved Louise

with especial appreciation for her editorial assistance

and illuminating insights

that gave substance to this

work

O N SEPTEMBER 30, 1913, at a moment when American attention was focused on the revolutionary monetary reform then under debate in Congress, the New York Times astounded and diverted its public by a bitter attack on a former president of the United States. The former president was Theodore Roosevelt who had, the year before, broken away from the Republican Party to run as the Progressive Party (Bull Moose) candidate for president. He had been defeated by Woodrow Wilson, but he had been a powerful candidate who had attracted the greater part of Republican Party votes, and his views on public questions still commanded a large following among the electorate.

What had aroused the mortal apprehensions of the Times editors was an article in the Century Magazine in which Roosevelt had outlined his proposals for a reorganization of government and society. The editorial attacked his blueprint as super-socialism. Without going so far as to charge Roosevelt with being a Marxistthis was before the Russian Revolution, but Marxism was even then anathema on these shoresit declared that he would in effect bring a Marxian redistribution of wealth in a simpler and easier way.

He leaves, the editorial went on to say, the mines, the factories, the railroads, the banksall the instruments of production and exchangein the hands of their individual owners, but of the profits of their operations he takes whatever share the people at any given time may choose to appropriate to the common use. The people are going to say, We care not who owns and milks the cow, so long as we get our fill of the milk and cream. Marx left socialism in its infancy, a doctrine that stumbled and sprawled under the weight of its own inconsistencies. Mr. Roosevelts doctrine is of no such complexity. It has all the simplicity of theft and much of its impudence. The means employed are admirably adapted to the end sought, and if the system can be made to work at all, it will go on forever.

The means by which Roosevelt would achieve these ends, the Times explained, drawing from the Century article, would be by a monolithic one-party political system, along with an indefinite expansion of government powers and functions. (It will be necessary, the Times quoted Roosevelt as saying, to invoke the use of governmental power to a degree hitherto unknown in this country, and, in the interest of democracy, to apply principles which the purely individualistic democracy of a century ago would not have recognized as democratic) Roosevelt would also abolish competition. (The business world must change from a competitive to a cooperative basis.) He would remove the restraints of an independent judiciary. (The people themselves should... decide for themselves... what laws are to be placed upon the statute books, and what construction is to be placed upon the Constitution....) He would confiscate the great fortunes (by a heavily progressive inheritance tax and a heavily graded income tax.)

This was the Roosevelt who had been the idol of the Republican Party, then as now regarded as the citadel of plutocracy and special interest. This was the Roosevelt whose portrait, despite his 1912 defection from orthodoxy, still adorns the walls of the Union League Club and other Republican strongholds. And this is the New York Times which became the loyal supporter of Franklin D. Roosevelt, his New Deal, and the successor Fair Deal, New Frontier and Great Society administrations that have out-Roosevelted Roosevelt.

The Theodore Roosevelt article and the Times editorial are significant in disclosing how far the political economy of the country was even then being borne on the currents of authoritarian dogma. What Roosevelt failed to see was that these immense changes which he proposed were even then in course of execution. They were brought about by means far more subtle and invisible than those he proposed, and without the necessity to invoke the use of government power to a degree hitherto unknown in this country, without abolishing competition, or the independence of the judiciary, without quite confiscating the great fortunes. The succeeding years witnessed the extension of a system whereby government became the senior partner in most businesses, in which it determined what expenses should be incurred; at what prices the product should be sold; how much employees, from the lowest to the highest, should be paid, and how long they should work; how much of the income of the business should be retained and how much distributed; and what share should go to the senior partner. At the same time the government would undertake to create or modify the climate in which business was conducted; it would influence, if not determine, the general level of prices; it would determine the optimum rate of business activity, either to stimulate or retard as in its wisdom appeared most desirable; it would conclude what forms of business activity should be favored and developed, what forms should be discouraged; it would determine the costs of capital to those who would embark in enterprise, according to its judgment; and it would make such capital available or not available, and set the rate of interest to be paid. It would even, for a season, reach down into the household and decide the important questions of household finance: is an electric washing machine a capital investment or a convenience of luxury?